One clause doesn't fit all: beware the boilerplate

In this article, solicitor Tony Dunn reminds us of the importance of ensuring that standard boilerplate clauses are tailored to meet parties' specific contracting requirements in light of a recent high court case.

Boilerplate clauses are standard clauses commonly found in commercial contracts. The areas they cover are considered to be applicable, and sometimes essential, to most contractual arrangements. Some common examples include clauses covering waiver, governing law, assignment, counterparts, entire agreement and notice.

The key is not to become complacent and treat boilerplate clauses as an afterthought once the terms of the operational clauses have been negotiated and agreed. Too often, the boilerplate clauses can become like the obligatory speech after a sports game. Once the real action is over, the captain dutifully thanks the sponsors, the other team and maybe the referee. But every game, like every contract, is different and a good captain will carefully consider how to arrange his speech to reflect that.

Similarly, it is important to always consider whether a boilerplate clause is applicable to the parties' transaction, and if so, how it should be worded to reflect the intentions of the contracting parties. A poorly worded boilerplate clause, or misunderstanding as to its effect can have major implications for the parties and can often end up being the subject of litigation.

An illustration of the type of problem that may arise with one standard boilerplate, the entire agreement clause, is provided by a recent High Court case noted below.

Entire agreement clause

The purpose of an entire agreement clause is to make it clear that the agreement between the parties is recorded completely in the contract and that any previous arrangements between the parties (on the same subject matter) are superseded by the terms of the contract. An example of a standard entire agreement clause is:

"This agreement constitutes the entire understanding between the parties concerning the subject matter of this agreement and supersedes all prior representations, proposals, discussions and communications between the parties."

It is therefore essential where a party does intend to rely on a prior agreement or representation, or if the contract makes up only one part of the overall arrangement between the parties, that an entire agreement clause is either not included in the contract or is carefully drafted to include references to the additional agreements or other relevant terms.

On the flipside, it is also important to ensure that if you do refer to other arrangements in the entire agreement clause, that these arrangements are still relevant and applicable to the transaction at hand.

In the case of Gatehouse v Middleton¹ a franchise agreement contained the clause:

"THIS Agreement, the Customer List and Operations Manual set forth the entire agreement between the parties as to the subject matter of this Agreement..."

An operations manual and customer list, however, were never produced in court and the entire agreement between the parties could not be established. Presumably, although not entirely clear from the facts given, this clause was retained from a standard franchise agreement without any consideration being given as to whether an operations manual or customer list would be provided for the purposes of the parties' own franchise arrangement. The court was therefore obliged to imply a term into the agreement to give it business efficacy.

Conclusion

Although boilerplate clauses provoke little, if any, discussion in most commercial transactions, if they are not given sufficient attention they can affect the outcome of the agreement in a way which was not intended by the parties. A little time spent considering whether a boilerplate clause is relevant to a contract and is worded to reflect the intention of the parties is time well spent.

¹ (Unreported judgment, Hamilton, High Court CIV 2006-419-808, 19 April, 29 May 2007)

Another standard clause which is often included in a contract with little consideration of whether it will work in practice is the dispute resolution clause. See the article Don't wait until it's too late - drafting dispute resolution clauses that work by senior associate Sally Fitzgerald in this issue of Commercial Quarterly for guidance on how to avoid some common drafting errors when using dispute resolution clauses in commercial contracts.

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